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Are “palliatives” and the new minimum wage an economic silver bullet or a grenade? 

The long-awaited new minimum wage in Nigeria is now set at N70,000, a 133% increase from the previous N30,000. Although this is much lower than labour’s demand of N250,000, it seems to be a fair bargain. Also, unlike 2019, this one has a 3-year tenor before renewal. The new minimum wage could be followed by a general wage adjustment for other labour cadre above the minimum wage level. National Youth Service Corp members will get at least N77,000 (minimum wage plus 10%) per month. This could bolster consumer demand and business turnover. However, as Milton Friedman averred, “There is no such thing as free lunch”.

The consequential cost of the new minimum wage could heighten fiscal strain in the public sector. The fiscally struggling subnational governments are already crying out. The private sector may have to layoff more workers to be able to comply with the new wage law. At the other end of the spectrum is the inflation risk. The FGN has announced a series of fiscal interventions aimed at boosting productivity and reining in inflation. This includes unconditional cash transfers, a N2 trillion fiscal stimulus, a 150-day free import window for rice, maize, wheat, and cowpea, and the distribution of 20 trucks containing 1,200 bags of 25kg rice each to every state. However, these are not sustainable long-term strategies and could stoke inflation in the long run. To ensure lasting relief, the government should focus on boosting domestic output.

A Spotlight on the “Shadow Economy” – Nigeria’s Informal Sector

Nigeria has around 40 million micro, small, and medium-sized enterprises (MSMEs), with nearly 90% operating in the informal sector. At the global level, it is estimated that this hidden giant employs over 60% of the world’s workforce and contributes significantly to GDP, especially in developing economies. In Nigeria, the informal sector constitutes about 92.3% of the total employed individuals. However, factors such as multiple taxation, weak infrastructure, and financial exclusion have limited its performance over the years. Because of the prominence of this sector, the government needs to pay extra attention to ensuring its growth and creating an enabling environment where businesses can thrive.

In this latest edition of Whispers, the FDC Think Tank takes a deep dive into recent economic developments and their impact on your business and corporate strategy.

Enjoy your read!